Falkland Oil and Gas Limited Set To Open Up New Horizons

Will Falkland Oil and Gas Limited (LON: FOGL) hit new oil in its new prospects?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The recent oil discovery at Isobel Deep in the North Falkland Basin will have brought payday distinctly closer for the companies owning a share of the assets. Premier Oil is operating the well, and Falkland Oil and Gas (LSE: FOGL) has a 40% stake.

Hot on the heels of that, announced at the end of May, comes the news that Falkland Oil and Gas has spudded an exploration well targetting the Humpback prospect covered by licence PL012 in which Falkland has a 52.5% interest. The new well, CEO Tim Bushell said, “is the exciting first test of a new geological play concept within the South and East Falkland basins. In the event of encouraging results, we have identified, on 3D seismic, multiple follow-up prospects“.

The biggest yet?

There’s always the chance that the Humpback prospect will turn out dry, and that would hit the share price, but it doesn’t look likely at this point. In fact, the company estimates total prospective resources of over a billion barrels for the cluster of prospects in the Fitzroy sub-basin, of which Humpback is one. And the new well will target multiple stacked reservoirs, increasing the chance of a hydrocarbon discovery.

There has to be a good chance that Humpback will encounter the best field yet in the Falklands basins, and that could lead the South and East basins to eclipse even the already great-looking prospects North of the islands. It should take around 65 days to drill the well, so we shouldn’t have too long to wait to find out.

Why so cheap?

The big question, with production and profits surely not too far ahead for Falkland Oil and Gas, is why the share price is still stuck in a rut. After a disappointing well result back in November 2012 the price crashed, and it’s stayed there — between then and now, there’s been almost no overall movement to today’s 29p per share.

The oil price crash has obviously played a big part, and an asset valuation at prices of around $100 a barrel rather than current $65 levels would considerably boost the price of the shares. But even so, the explorer is fully funded for its 2015 drilling programme, and though there’s no profit forecast for this year and next, it really can’t be very far away now.

There aren’t many brokers offering recommendations at the moment, but there is a Buy consensus emerging — and the average price target of 34p sounds very conservative to me.

Good value

I’m not really an oil investor, but the risk to reward ratio for Falkland Oil and Gas is looking pretty favourable to me right now, and I see a high probability of profit for those investing at today’s prices.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »